Neco 2019 Economics Question 2
Practice objective / multiple choice question 2 from the 2019 Neco Economics examination.
A bank advertises a nominal interest rate of 12 % per annum, compounded annually. An investor expects inflation to be 5 % in the first year, 7 % in the second year and 6 % in the third year. Using the Fisher approximation \((1+i) = (1+r)(1+\pi)\), where \(i\) is the nominal rate, \(r\) the real rate and \(\pi\) inflation, (a) compute the real interest rate for each of the three years, (b) find the average real interest rate over the three‑year period, and (c) determine the real value of an initial ₦10,000 investment after three years.
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About This Question
This is Neco 2019 Economics Question 2. It is one of the objective questions from the 2019 Neco Economics examination.
Difficulty level: Medium .
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